1987 (3) TMI 164 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the notice issued under section 148.
2. Dispute over the distribution of property within the family.
3. Ignoring the valuation report of property.
4. Taxability of capital gains arising from the exchange of properties.
5. Treatment of the transaction as a gift and its implications under section 47(iii).

Issue-Wise Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The appellant challenged the notice issued under section 148 as illegal and invalid, arguing that there was no new information on record to justify the reopening of the assessment under section 147(b). The original assessment was completed under section 143(1) on 8-3-1979, and the notice under section 148 was issued on 20-3-1981 based on a valuation report that indicated an exchange of properties resulting in capital gains. The tribunal held that the learned ITO had sufficient material to form an opinion that income assessable to capital gains had escaped assessment, thus justifying the reopening under section 147(b). The tribunal agreed with the CIT(A) that the reopening proceedings were validly initiated.

2. Dispute Over the Distribution of Property Within the Family:
The appellant contended that there was a family dispute settled by a court order, implying no capital gain should arise from the transaction. The tribunal noted that the family settlement was genuine and aimed at resolving disputes between the brothers. The tribunal concluded that the family settlement did not constitute a transfer under section 45 of the IT Act, and thus, no capital gains were taxable.

3. Ignoring the Valuation Report of Property:
The appellant argued that the CIT(A) ignored the valuation report dated 26-6-1982, which was referred to in a letter dated 10/11-2-84. The tribunal observed that the valuation report was one of the bases for reopening the assessment. The tribunal found that the ITO had acted on the valuation report and other information in possession to initiate the reopening proceedings, thus validating the use of the valuation report in the process.

4. Taxability of Capital Gains Arising from the Exchange of Properties:
The tribunal examined whether the exchange of properties between the assessee and his brother resulted in taxable capital gains. The tribunal held that the transaction was a family settlement and not an exchange or transfer under section 45. The tribunal relied on the case of Ziauddin Ahmed, where it was held that a family settlement bona fide to put an end to disputes is not a transfer. Consequently, the tribunal concluded that no capital gains arose from the transaction.

5. Treatment of the Transaction as a Gift and Its Implications Under Section 47(iii):
The appellant argued that even if the transaction was considered a gift, it should not be treated as a transfer under section 45 due to section 47(iii). The tribunal noted that the revenue had treated the transaction as a gift in the gift-tax assessment of the assessee's brother. The tribunal concluded that section 47(iii) debarred the operation of section 45, and thus, the transaction could not be taxed as capital gains. The tribunal cited the case of Mrs. Avtar Mohan Singh to support this conclusion.

Conclusion:
The tribunal allowed the assessee's appeal in part. It confirmed the validity of the reopening proceedings but vacated the confirmation of the CIT(A) regarding the taxability of capital gains. The tribunal held that the family settlement did not result in taxable capital gains and that the transaction, even if considered a gift, was not subject to capital gains tax under section 45 due to section 47(iii).